Illinois Bails Out Ailing District; Others Struggling

Lawmakers in Illinois have reached into the state's near-empty
wallet to bail out the financially decimated Hazel Crest school
district. Now, they're hoping they don't have a state full of Hazel
Crests.

Outgoing Gov. George Ryan, a Republican, signed a bill Dec. 6 that
awarded a $4.4 million emergency loan to the suburban, Cook County
school system of 1,100 students just a few miles outside Chicago.

But there are signs that other districts in the state may be just as
needy. A few months ago, state education officials estimated up to 85
percent of Illinois' 893 school districts could be facing deficits this
school year. And last month, state schools Superintendent Robert
Schiller warned that about 20 districts could be so financially
strapped during this school year that they couldn't pay their bills.
("Illinois Districts
Using Red Ink to Pen Budgets," Nov. 6, 2002.)

Hoping to learn of future budget woes before they become crises, the
Illinois state board of education in November approved new guidelines
for evaluating the financial status of districts.

The state's loan to the Hazel Crest system, which is officially
known as Hazel Crest School District 1521/2, is expected to allow the
district to remain open through the end of this school year. The
legislature also created a five-member school finance authority to
oversee the district's budget, and gave the panel broad powers to set
taxes and regulate day-to-day operations.

The district's fiscal woes emerged partly from a pattern of taking
on long- and short-term debts to cover operating expenses.
Superintendent Harry Reynolds said if school leaders hadn't borrowed
the money, students in the district with relatively little tax wealth
would have gone without basic supplies and classroom services.

Over time, Hazel Crest's losses mounted, with annual deficits last
year reaching $2.5 million, for a district with a total budget of $9.3
million. Hazel Crest leaders told state officials they needed $5
million just to stay open through the end of the year.

Last month, the Hazel Crest school board voted to dissolve the
district at the end of the school year, with students being sent to
other, nearby school systems. But Mr. Reynolds said administrators
still hope to find enough money to keep it open.

"I would push continuously for what's in the best interests of the
students," the superintendent said. "There is no reason they shouldn't
have the same opportunity as students in neighboring areas."

Watch List

To this point, Illinois districts have been put on the state's
financial watch list if they had a poor fund balance-to- revenue ratio.
But that system has been anything but precise, state officials say:
Only 11 districts were on the most recent watch list, and Hazel Crest
was not one of them.

But under the new system approved by the state board in November,
called the School District Financial Profile, the state will collect
four additional pieces of information from districts to judge their
financial well-being: days of cash on hand; an estimate of how much
they spend on transportation, operations, and other costs, compared
with revenues; short- term debts; and long-term debts, to be paid over
more than one year. The new financial profile is expected to take
effect this spring.

Previously, the state only measured districts' balance-to-revenue
ratios, a factor that will continue to be evaluated under the new
profiling system.

The crisis in Hazel Crest also has fueled demand for an overhaul of
Illinois' system of school funding, which would reduce districts'
reliance on local property taxes.

Sen. Miguel del Valle, a Democratic state lawmaker from Chicago, has
introduced legislation to raise state and corporate income taxes and to
cut property taxes. The bill, which will be debated this year, would
raise about $3 billion in new revenue for schools annually, though at
least $2 billion in additional revenue would still be needed to meet
education needs, the senator estimated.

But Illinois could start the next budget year with a $2 billion
deficit, out of a 2003 general fund budget of $22.3 billion, and its
new governor, Rod Blagojevich, a Democrat, has pledged not to raise
taxes—two obstacles that were not lost on Sen. del Valle.

"Given our budget situation," he said of his bill, "this becomes a
very, very, very tough sell."

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